Exploring the relevance of the Board of directors for SMEs in Nigeria.

SMALL AND MEDIUM ENTERPRISES (SMEs)

There is no universal definition of Small and Medium Enterprises (SMEs), each country has its’ own definition of SMEs. Across the globe, the definitions of SMEs are based on variables such as the: number of employees, size of capital, annual turnover, industrial sector, and value of the company’s assets, among other things[1]. For instance, the European Union (EU) defines SMEs as categories of micro, small, and medium-sized enterprises that employ less than 250 people and have an annual turnover not exceeding 50 million Euros. The Central Bank of Nigeria defines SMEs as enterprises with a maximum asset base of N500 million, excluding land and working capital, and employees of not less than 10 or more than 300 people. [2]

BOARD OF DIRECTORS

The board of directors is a panel appointed to supervise and control the operation of an enterprise.[3]The board of directors for SMEs oversees the activities and ensures the accountability of the company’s management. It is responsible for the corporate governance of an enterprise. While a board of directors is a requirement for public companies, it is optional for private companies.[4]Several misconceptions about corporate governance have influenced the majority of the owners of SMEs who choose to function without a board. Among other reasons often adduced are financial limitations and concern over relinquishing control or exposing the business to outsiders who may not have the best interests of the company at heart.

Despite these concerns, it is often stated that remarkable endeavors are not the result of a single effort but rather the collaborative contributions of skilled individuals who pool their resources together. After all, two or more good heads are better than one. Various studies show that corporate governance is pivotal for any business that desires to survive as well as excel. Therefore, it is a good practice for SMEs to set up a board to direct and guide the business from infancy to the next level.[5] Why? One may ask; the reasons are simple. A few of these are that the global business environment is complex and challenging, especially for SMEs; hence, they need access to resources in the form of knowledge, information, skills, finance, expertise, goodwill, and experience, which a startup may not necessarily have. Therefore, having individuals who bring these assets to the table, positions the business to thrive and excel. The Board is the epitome of what the company stands for. Investors who do their due diligence are more likely to deal with companies that have a strong and healthy board than those that do not. So, for SMEs that want to expand their capacity, attract investors, have access to loans, and outlive the original owners of the business; setting up a board of directors is a necessity. Some of the numerous benefits of setting up a board for SMEs include:

  • It provides balance and objectivity in decision-making.
  • It enables accountability within the company.
  • It positions the business to attract investors.
  • It accelerates growth (as it injects into the business a rich blend of diverse experience, knowledge, and skills the directors have gained over time in the business environment).
  • It provides focus on the objectives, tasks, and projects of the company.
  • It provides innovative strategies.
  • It improves operational and financial performance.
  • Provides networking opportunities for the business to connect with industry professionals.

These benefits should serve as strong reasons why a startup should consider setting up a board of directors.

ADVISORY BOARDS FOR SMEs

SMEs (especially startups) that do not have the financial capacity to set up a board of directors can opt to set up an advisory board. The Board could comprise trusted friends, associates, and professionals who are business leaders with certain skills and expertise to supplement the knowledge and skills of the management. Although there is usually no remuneration or legal obligation to the company owners or shareholders at large, compensating the advisory board for their time and expenses made in the process of carrying out their duty may encourage their commitment and earnest participation. The advantage is that it provides that initial source of guidance and advice at a company’s formative stage. The company may, at a later stage, set up a formal board of directors to guide its affairs.

REFERENCES

[1] Etuk .R., Etuk .G. E. & Gbaghebo .M. (2014) Small and Meduim Scale Enterprises (SMEs) And Nigeria’s Economic Development. Mediterranean Journal of Social Sciences 5(7):656-662

Doi :105901/mjss.2014.v5n7p656    Researchgate.

[2] Small and Medium Industries Equity Investment Scheme (SMIEIS) (2006). A paper presentation at the National Summit on SMIEIS: organized by the Bankers Committee (Bankers’ Committee Revised, April 2006)

[3] Section 269 (1) Companies and Allied Matters Act (CAMA) 2020

[4] Section 275 CAMA 2020

[5] Musa, Ukairo & Buhari (2019) Corporate Governance and Performance of Small and Medium–sized Enterprises. Social Science Research Network.

https://paper.ssrn.com/sol3/Delivery.cfm/ssRN_ID3487488_code1941763.pdf?abstractid=3487488&mirid=1

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